According to the Department of Ecology’s December 2025 revenue forecast, revenues from the carbon emission allowance auctions are estimated to be $832.2 million higher (over the 2023–25, 2025–27, and 2027–29 period) than expected when the 2025–27 budgets were adopted last year. Based on the current revenue forecast, the state effectively has a one-time windfall that will not exist in the future.

Consequently, operating budget proposals from Gov. Ferguson and the House Appropriations Committee Chair would have used some of the carbon auction revenues to fund the Working Families Tax Credit, in lieu of the general fund–state (GFS), on a one-time basis.

The supplemental operating budget passed by the Legislature does not make such a direct shift to a specific program. However, it does shift $1.010 billion from the capital budget to the operating budget. To do so, it uses the higher-than-anticipated climate commitment act (CCA) revenues.

The capital budget funds directed to the operating budget are:

• All capital gains revenues in 2025–27. Normally, any collections over $500 million a year are deposited in the common school construction account. The outlook estimates that this action will shift $395 million from the capital budget to the operating budget for general use.
• $375.0 million from the public works assistance account (PWAA), transferred to the GFS for general use.
• $239.9 million from the higher education institutions’ building accounts, appropriated to the institutions of higher education operating fees account, which is used in lieu of the GFS for general appropriations for higher education.

These actions do not reduce existing appropriations for capital budget projects:

• The enacted 2025–27 capital budget appropriated only $45.0 million from the common school construction account, not the entire amount of revenues anticipated from the capital gains tax.
• Projects that were funded from the PWAA and the higher education institutions’ building accounts will now be funded with state bond proceeds. (Specifically, state bond proceeds will backfill all $239.9 million to the institutions’ building accounts and $300 million to the PWAA.)
• The projects that had been funded with the $539.9 million in state bond proceeds will now be funded from CCA accounts.

This swap does not reduce funding for current CCA projects; instead, it makes use of the higher revenues expected in the most recent revenue forecast.

The final maneuver is that the operating budget states it is the intent of the Legislature to transfer $539.0 million from the pension surplus holding account to the climate commitment account in 2027–29. The pension surplus holding account is where the expected surplus funds from the Law Enforcement Officers’ and Firefighters’ retirement system Plan 1 (LEOFF 1) will be deposited on June 30, 2029.

To summarize, if the LEOFF 1 termination takes place, some of the surplus will be used to backfill the CCA, which is used to backfill state bonds, which are used to backfill the PWAA and the higher education institutions’ building accounts, which are used in lieu of the GFS this biennium.